Since there was some interest in examining Apache here, and it presently is one of my larger long term holdings (I first bought APA in 1995), I thought I would start this research thread.

Historical background:

Apache Corporation is one of the largest independent oil and gas exploration and development companies with operations in the United States, Canada, Egypt, Australia, the United Kingdom North Sea, China and Argentina.It is, in the energy industry, a "pure-play". That is, its revenue stream derives principly from it production of oil and gas -- it doesn not refine or retail to any extent.

One of the distinctive features of Apache is its relative youth, compared to its peers It was started 50 years ago in Minneapolis, Minn. Raymond Plank, the current chair, was one of the three co-founders. It started its oil operations with a small production of 800 barrels per day in Oklahoma and Kansas. Presently it produces 800 barrels of oil equivalent in about three minutes – with operations in seven countries.For several decades it was a diversified company, itMi> “grew oranges and sold auto parts in California, manufactured walnut rifle and shotgun stocks in Iowa and vehicle doors in New York and owned a Nebraska radio station, a Wyoming cattle company and dude ranch, shopping centers and telephone exchanges.” But oil and gas was always the key operation.It went public as an IPO in 1969. In 1987, it moved its corporate headquarters to Denver – also in that year it sold its last no oil-related business – agricultural property in California. In 1992, it shifted again, this time to Houston.During the 1990's, Apache increasingly focused on and became the premiere "acquire and exploit" company in the industry; acquiring hundreds of “mature” oil fields from the major producers and through a highly capable workforce and management often enhancing the production of those fields beyond what their former owners were able to get out them – and thereby reaping profits. Unlike most of its peers, this aggressive strategy of growth through acquisition – funded in considerable part by secondary offering of stock and successful reinvestment of the proceeds – makes it almost unique in its industry.

Resources:

“As of December 31, 2002, the Company had total estimated proved reserves of 637 million barrels of crude oil, condensate and natural gas liquids (NGLs) and 4.1 trillion cubic feet (Tcf) of natural gas. Combined, these total estimated proved reserves are equivalent to 1.3 billion barrels of oil or 7.9 Tcf of gas.”

In North America, Apache fields are in the Gulf of Mexico (inner and outer continental shelf), the Permian Basin (West Texas, USA), the Anadarko Basin (West central Oklahoma), and the Western Sedimentary Basin (Canada).These fields are the greatest source of income for APA, and account for the bulk of estimated proven reserves.Egyptian operations are a significant part of Apache, providing 22% of production revenues and having 10% of total proved reserves ( December 31, 2002).In Australia, APA 18.2 Mmboe (million barrels of oil equivalent), about 15% of Apache's total production for 2002. Estimated proved reserves in Australia are currently 11% of Apache's total.China is a relatively new base of operations for Apache – they have been there since 1994. Currently they are the operators and have a 24.5% interest in the Zhao Dong offshore field. They anticipate peak production to be about 22,000 barrels per day. Their share should be about 20 Mmboe per year.Apache has small interests in Poland and Argentina – the latter may be a springboard for further investments in Latin America (In 2002, the Argentine production was 7.3 MCF of natural gas and 617 barrels of oil per day).In the Spring of 2003, Apache acquired the North Sea “Forties” field from British Petroleum. The “Forties” is the largest field in the UK zone of the North Sea. This field has estimated proven reserves of 147.6 Mmboe and an anticipated 2003 net production of 45,000 barrels of oil per day – making a major part of Apache's operations.

Side note:On the downside, because so much of its reserves are concentrated in North America, almost ¾'s (a situation it is, again aggressively, moving to alter), its cost basis is high – and as such more dependent on high oil prices. However since it is likely (in my thoughts) that oil will remain above $15 per barrel and gas over $2.2 per TCF (thousand cubic feet), the chance of Apache running a negative margin are slight. Nevertheless, profits are and are likely to be volatile.

General observation:When looking at any energy company, one should always keep in mind that the bottom line is that they are all engaged in a commodity driven industry, albeit a very special case – the classical assumptions about price inevitably dropping to the least amount over production cost, and that therefore only the most efficient producers thrive, aren't true in regards to Oil.As was said of another, truly repugnant situation, It is a Peculiar Institution. These are the two major reasons why:

1. It is an skewed distributed, exhaustable, finite commodity. Oil isn't distributed evenly across the world; concentrations of major fields makes it both possible for producers to have greater pricing power and at the same time puts a time constraint on them. Along with the distribution/exhaustion issue is the larger one of how finite this resource is. Even if you chose to disagree with the Hubert's Peak hypothesis (see: http://www.princeton.edu/hubbert/the-peak.html), there is little doubt that over the next several decades, there will be a strain on production versus demand.

2. The price elasticity of demand is affected by politics, and perhaps even more so by its critical role as the energy underpinning of modern civilization (see: http://www.quickmba.com/econ/micro/elas/ped.shtml for a nice, clear explanation of elasticity of demand). This is a condition that is very unlikely to change.

Well, that is it to start. If there still is interest I will post more -- and hope that others (in the collective spirit) will also take up this thread.

I would be interested in your opinion of STO. I invested in them when they listed in 2001. I think being owned by Norway would add some stability to the company and it's prospects.

Statoil ASA. The Company's principal activities are the exploration, production, transportation, refining and marketing of petroleum and petroleum-derived products. The Company operates through the following divisions: refining, marketing, trading and supply of oil, shipping and maritime technology and natural gas business development; exploration, development and production of oil and gas and marketing and supply of natural gas. Proved reserves of oil are estimated to 1,867 million barrels, proved reserves of gas to 381.6 million barrels. Refining and marketing accounted for 71% of 2002 revenues; exploration and production, 21% and natural gas, 8%.

Why would they list on two markets? Will the stock sell for two different prices or what? I don't understand the reasons behind this.

The stated reason are greater liquidity; i.e, making it even easier to buy and sell APA shares. It is true that it does that...even though it was supposedly already on that most liquid of markets, the NYSE. But, if you stay on the NYSE...and list on another exchange..by definition, whatever your good liquidity was on the NYSE alone, it has now increased.

I tend to think there's more behind it, however; though I'm just guessing. But of the three exchanges in the US, the NYSE has had its reputation tarnished the most of late; and for good reasons. It has the highest overhead, the most inflexible, unchanging system, and the least innovation. So no matter how prestigous, those latter three issues are unnecessary 'costs' of doing business, and trading shares. Up until now, there has been no incentive really for the NYSE to change. It has assumed it's Number One slot was written in stone. But with the scandals, and with both NASDAQ and AMEX (and, heck, TSX/Toronto, for that matter) innovating and changing more than the NYSE...and the NYSE 'costs' a lot more....I can understand why a company would want the NYSE to know that it does have other options. And I think they've gotten their attention.

What's interesting is that I think the dual-listing will essentially be invisible to most of us; since they are keeping the same symbol, APA, for both! So for me sitting at this computer, my actions don't change; after all, all I do is type in APA et al; Scottrade (in my case) then has the duty to go and trade it for me, at less than the $7 or $12 they charge me, so they can make a profit themselves.

I can see how Scottrade might like it; it gives them another option to trade shares of these couple of companies. It means competition; both NASDAQ and NYSE know that Scottrade and others don't have to go through them; they now have options.

BTW, Toronto has just initiated its own small scale experiment: they just started trading a handful of companies....in either Canadian, or US, dollars; whatever the customer wants!! Up until now, for example, for those companies trading in both countries, to be listed in Toronto meant trading in C$ and in the US (trading in US$). Sometimes I've had to make a decision which set of dollars I wanted to buy in; and that automatically meant I had to use only one of the exchanges to do it. Now, for these few test stocks, it's 'one stop shopping' at Toronto; which makes Toronto more competitive (in that sense).

The rules of economics still apply. Big, old, fat, lazy, corrupt, NYSE has been sitting high on its perch, assuming its position was untouchable; doing essentially no innovation over the years. NASDAQ innovated more by greater use of electronics, and going after technology stocks; AMEX, had to compete in some way...and they came up with the ETF concept on a large scale...which I, among many others, now make use of. And now NYSE, after scandals, is being shown that it ain't necessarily the only game in town; and even Toronto is letting everybody know it's still very much alive in North America, too. I love it.

If you could, that would be great. I have my own opinions on the quality of managment at Apache, but it is critically important to get other points of view -- and coming at it without any particular history or baggage is a very valuable asset.

Sorry that I didn't respond earlier -- I am catching up on past posts.

I'm not that familiar with Statoil ASA – I know them on a personal basis, but not I haven't followed them closely in terms of investment.I can give you this excerpt from one of the articles I have in regards to the major North Sea players:

“In summary, the Norwegian oil and gas upstream industry and market is dominated by:Actors:• Two major operators, Statoil and Norsk Hydro, control around 80% of activity• A limited number of other operators• Strong state participation and regulation• Established contractors and supply industryAssets:• Major fields developed in the 1980's and early 1990's, with current re-development, enhancedoil recovery and satellite development activities or plans• Smaller field developments in areas of existing infrastructure• New deep-water field developments• Few and small discoveries in recent years• Large un-explored areas in deep water and northern areas• Currently low exploration activityTechnology and competence:• Advanced technology• Highly qualified personnel, but limited availability of new graduatesShort-term market:• Low exploration activity• High field development activity next two years• Ongoing and defined future development projects• Activity on existing field installations.Long-term market:• A few major new field developments, such as Ormen Lange• Development of several smaller discoveries expected• Major re-development project in the Ekofisk and Tampen area• With the current low exploration activity, and few new discoveries during the last few years,the long-term market for new field development services is more uncertain”

I did a quick back of the envelope estimate on fair value for STO using the following parameters:

1. A tangible book value of about $9.7 billion.2. A business value of the proven reserves of about $15.5 billion (this figure does not reflect the theoretical value of the reserves over their life, but rather a discount based on present and future extraction costs, exhaustion rate, and cost of capital)By that method, the company is roughly worth about $11.61 per share – just a little over its current price.

As for future price... Well, that depends on two three key variables: The supply/demand equation for oil – which I believe is favorable; their ability to maintain at least their present level of proven reserves – which as the last comment in the above summery noted is uncertain; and the future price of oil – for a surprise free scenario, I tend to use $30 per barrel as the likely benchmark over the rest of the decade.Given that, My guess – very approximate, is that STO should appreciate between 5-7% a year on average. Add the dividend yield – (I would normally back out inflation, but the issue of the dollar's valuation makes that almost impossible) and you are probably looking at total return somewhere 8.5-10%.Not terribly exciting, but if you feel as I do that the most likely market returns over the next 5-10 years are going to below that, it isn't a bad investment. Just not a compelling one – at its current price.